There are credible predictions that the drought will persist through next summer. That's scary. Lake Travis, one of our two main reservoirs, is 47 feet below full. We are in trouble if this trend line continues for another year:
If the people of Texas forecast that the summer of 2012 will resemble the summer of 2011 what actions can they take over the next year to reduce the impact on their economy and their quality of life?
I would hope that water prices are allowed to rise so that people with grass front lawns will think about replacing that beautiful stuff with plants that require less water.
Electricity prices should also rise on hotter days. As electricity demand rises due to rising air conditioner use, I would hope that the region's grid has excess capacity to built in for peak days. There should be more use of critical peak pricing for both residential, industrial and commercial consumers so that demand side responses (i.e people using less electricity on high demand days) help to minimize the probability of blackouts on those really hot days. If people face higher electricity bills, then they will demand more energy efficient appliances and the world's firms will figure out how to make them. Demand creates supply.
Water is the more pressing concern and the good news is that Austin Water Utility has adopted tiered, block pricing that charges hefty premiums to high water users. And, wisely, AWU has proposed price increases to kick in in November. It will raise the marginal price of 1,000 gallons of water for each residential tier by 4.7-5.4%. AWU is tacking on a monthly $6 "water sustainability fee," which is regressive and superfluous as long as it's pricing the water properly.
More price increases will be necessary if this drought continues. But we know that price is an effective way to ration water, more effective than mandatory conservation (and oodles more effective than voluntary conservation). While demand for water is inelastic, it is not perfectly so: estimates of the price elasticity of demand by residential water users fall between -.33 and -.64. See this study at p. 23 (pdf). A 1999 study of Texas cities (see here (pdf) at p. 19) estimated Austin's price elasticity at -.17, but this included commercial and industrial users, who are likely less sensitive to price. Regardless, long-run elasticities will be higher if there is a credible commitment to high prices, as homeowners do what Kahn suggests and switch to more efficient appliances and replace grass with drought-resistant plants. AWU has made a credible commitment to high prices.
Because price is so effective at conserving water, I find it absolutely bizarre that many local environmentalists are opposing the new rate hikes. But the rate hikes will raise revenue because the demand for water is inelastic, and the City intends to use the extra revenue to pay for the new water treatment plant. Opponents of the plant are so determined to block the plant that they have been citing the rate hikes as a downside of the plant even though they know (or should know) that raising rates is the most effective strategy for conserving water and will be necessary even if the plant is not built. They should stick to arguing that WTP4 is a bad use of taxpayer money and not front arguments that undercut water conservation.